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Conflict Of Interest? A Tale Of Two Ukrainian Oligarchs And One Deputy Minister

(Left to Right): The challenge Ukraine faces in reeling in its oligarchs has been highlighted by the tangled relationship between Deputy Energy Minister Ihor Didenko (left) and two of the country's tycoons: Hennadiy Bogolyubov (center) and Ihor Kolomoyskiy (right)
(Left to Right): The challenge Ukraine faces in reeling in its oligarchs has been highlighted by the tangled relationship between Deputy Energy Minister Ihor Didenko (left) and two of the country's tycoons: Hennadiy Bogolyubov (center) and Ihor Kolomoyskiy (right)

KYIV -- When a senior government official owns a company together with an oligarch and takes decisions to benefit the partner's other businesses, does it indicate a conflict of interest? In Ukraine, the answer depends on who you ask.

Deputy Energy Minister Ihor Didenko -- who was recently discovered to have a joint business with billionaires Ihor Kolomoyskiy and Hennadiy Bogolyubov -- says he does not think there is any conflict because their company does not fall under his direct authority. Kolomoyskiy and Bogolyubov do, however, own and control significant energy assets in Ukraine, the sphere Didenko supervises.

"In my activities as a deputy minister for energy and coal, I adhere to the demands of the anticorruption legislation of Ukraine," Didenko told RFE/RL's Ukrainian Service.

Uncovering and eliminating potential conflicts of interest among politicians and leading tycoons is an essential task for Ukraine's rulers as they struggle to rein in the powerful oligarchs who have long wielded undue influence over the economy.

But the relationship between Didenko, Kolomoyskiy, and Bogolyubov illustrates how resilient and resistant to change the old system is.

"The key position that I am starting from is the deoligarchization of the economy. We're trying to build order in the country, but they [the oligarchs] are chaos," President Petro Poroshenko said in a recent public speech.

Legal Loopholes

Poroshenko's comments came shortly after Kolomoyskiy resigned under pressure as governor of the Dnipropetrovsk region and efforts by the authorities to oust his allies from the management of two state-owned oil extraction and transportation companies, which came as part of the greater antioligarch cleansing campaign in Ukraine.

But that campaign has continually faced pitfalls as powerful interests exploit loopholes in existing legislation, weak enforcement mechanisms, and a chaotic legal environment. Didenko, Kolomoyskiy, and Bogolyubov are a case in point.

According to the national database of companies, Didenko has since 2008 owned a minority stake in Proton-21, a firm that specializes in energy industry innovations. His share is worth 15 million hryvnya (more than $650,000). Kolomoyskiy and Bogolyubov own stakes more than three times that size.

According to Forbes' estimates, Kolomoyskiy and Bogolyubov are each worth approximately $1.3 billion, but Ukrainian media have estimated their fortunes to be as much as several times higher.

There is another minority partner in Proton-21, an actual inventor. According to the company website, it specializes in creating safe technologies for radioactive waste disposal. But the firm has not registered any patents on inventions since 2004, according to Ukraine's database of patents.

The company's offices, located just outside Kyiv, are closed for visitors and no Proton-21 officials would comment for this story.

Olena Shcherban, a lawyer with the Kyiv-based watchdog group the Anticorruption Action Center, says Didenko was legally obliged to transfer his corporate rights to a third party soon after being appointed deputy minister in May 2014.

But Didenko claims there is no conflict since "companies that belong to the sphere of management of the ministry [for energy and coal] do not have contract relationships with JSC Proton-21 and do not conduct negotiations and sign agreements with JSC Proton-21."

In the past, however, Didenko has helped out his partners' other businesses by making decisions in other government jobs that benefited their business, Privat Group, according to a series of ministry documents made available to RFE/RL's Ukrainian Service.

For example, when working as de facto head of Ukraine's oil and gas monopoly, Naftogaz Ukraine, in 2009, Didenko allowed his business partners to take control over the majority of Ukrtatnafta, an oil company that owned a strategically important oil refinery in Ukraine.

Didenko argued that Naftogaz, a state oil and gas company with a chronic financial deficit, did not have the money to buy out the stake, even though it had the right of first refusal to do so. But oil and gas expert, Leonid Kosyanchuk, who used to work for the Energy Ministry, says Didenko simply failed to act early enough to secure financing for this buyout.

The following year, Didenko, again as acting head of Naftogaz, signed off on a decision that allowed Privat Group to take over the management of an oil extractor Ukrnafta. Privat Group owns just 43 percent of the company, while the state owns the majority.

Debt To The State

As a result of these and other decisions, Privat Group, which also owns one of Ukraine's largest networks of filling stations, has for years enjoyed the benefits of an integrated oil company, while ignoring the need to pay off dividends to other shareholders of some of the companies it controlled.

Ukrnafta alone owes the state more than 1.3 billion hryvnya (close to $60 million) in dividends, according to former Energy Minister Yuriy Prodan.

Last month, Ukraine's parliament approved a new law designed to strip Privat Group of its control over some state-owned assets. Kolomoyskiy called the decision a "corporate raid" and attempted to take over the buildings of two state controlled companies, Ukrnafta and Ukrtransnafta, with the help of armed guards.

He showed up at both sites during the takeovers. When asked by RFE/RL's Ukrainian Service about his intentions, Kolomoyskiy spouted insults and expletives and gave no coherent explanation.

Just days later, on March 25, Kolomoyskiy resigned, under pressure, as governor of Dnipropetrovsk region, but so far has retained control over the state assets.

Viktoria Voytsytska, a member of parliament who sits on the energy committee in Ukraine's legislature, said that Kolomoyskiy and his managers "have used the existing legislation to preserve their place" in state-owned companies.

Kolomoyskiy has not been shy about his interests and methods, though. When interviewed by his own 1+1 TV channel, he said that "fair play isn't possible in Ukrainian politics. It won't happen anywhere, for that matter."

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